Farm Income Insurance as a Risk Management Tool in India: Lessons from International Experiences

With an accelerated pace of globalisation and trade liberalisation, both production and price risks in agriculture seem to have increased substantially. Governments are now exploring the ways of managing these joint risks by introducing innovative farm income/revenue insurance products. To take care of the variability in both the yield and the market price, Government of India implemented a pilot project, viz. Farm Income Insurance Scheme (FIIS) during Rabi 2003–04 season and Kharif 2004 season. The major objective of the scheme was to protect farm income and ensure sustainable production. However, in the area under FIIS, procurement of food grains with Minimum Support Prices (MSP) was withdrawn with an aim to resolve the problem of excess stock with Food Corporation of India (FCI). Most of the states were not keen to implement the scheme as the withdrawal of MSP based procurement was not acceptable to them, since MSP was acting as a safety net universally for all the farmers during adverse price situation. However, the paper argues that farm income/revenue insurance provides a market-based solution and entitles the insured with compensation in the event of revenue loss caused by non-preventable risks. Therefore, there is a need to offer farm income/revenue insurance along with cropyield and rainfall insurance to stabilise the farm income and promote commercialisation of agriculture.